GLOBALISATION: ‘PROBLEM & SOLUTION’

1. THE CRITICS’ VIEW

DEFINITION – Globalisation is defined as the ever-increasing integration of national economies into the global economy through trade and investment rules and privatisation, aided by technological advances. These reduce barriers to trade and investment and in the process reduce democratic controls by nation states and their communities over their economic affairs. The process is driven by the theory of comparative advantage, the goal of international competitiveness and the growth model. It is occurring increasingly at the expense of social, environmental and labour improvements and rising inequality for most of the world.

Or more bluntly:

Globalisation n.1. the process by which governments sign away the rights of their citizens in favour of speculative investors and transnational corporations. 2. The erosion of wages, social welfare standards and environmental regulations for the sake of international trade. 3. the imposition worldwide of a consumer monoculture. Widely but falsely believed to be irreversible. – See also financial meltdown, casino economy, Third World debt and race to the bottom (16^th century: from colonialism, via development).

2. THE OFFICIAL VIEW

The former UK Minister for Trade, Richard Caborn, previously said:

…The government remains firmly behind a comprehensive new round of negotiations in the WTO as the best way forward for the UK, for developing countries in particular, and for the world economy as a whole. We are working for a more transparent WTO which promotes sustainable development and fosters the rule of law in international trade. [Richard Caborn MP (1999) Letters to the Editor, The Guardian, 11 October]

WTO = World Trade Organisation

In extracts of a letter to Alan Simpson MP, dated 19 February 1999, Brian Wilson MP, a former minister of trade, wrote:

Trade liberalisation is not the cause of the problem of the world’s economies, but the answer to them.

“By securing better access to overseas markets for producers, by reducing trade barriers, and maintaining and improving the supply of competitively priced goods and services to consumers, trade liberalisation brings widespread welfare benefits and helps to improve the efficiency with which the world’s resources are used. That is why the Government supports the EU’s call for a comprehensive new Round of trade liberalisation, which has already met with support from a number of developed and developing countries.”

Trade and environment:

“Our overall aim is to work towards sustainable development in accordance with the principles set out in the Rio Declaration adopted in 1992. The Government will work to ensure that trade liberalisation contributes to this aim, including action to safeguard the environment and the interests of developing countries. By enabling developing countries to derive more benefits from increased access to overseas markets and to inward investment, we can help them to increase prosperity which in turn has the potential to enable them to raise their standards of environmental and social protection.

…The Government believes that the evidence shows strongly that trade liberalisation is in the best interests of developing countries as well as developed countries. The OECD has found that in the last decade countries which have been more open to trade and investment have achieved twice the average annual growth of more closed economies. This is of particular importance to those countries which need to grow faster to deal with their greater infrastructure and capacity weaknesses.” [Brian Wilson MP, former Minister of Trade]

3. AN ALTERNATIVE

Localisation – A process which reverses the trend of globalisation by discriminating in favour of the local. Depending on the context, the ‘local’ is predominately defined as part of the nation state, although on occasions it can be the nation state itself or even occasionally a regional grouping of nation states.

The policies bringing about localisation are ones which increase control of the economy by communities and nation states. The result should be an increase in community cohesion, a reduction in poverty and inequality and an improvement in livelihoods, social infrastructure and environmental protection, and hence an increase in the all-important sense of security. Localisation is not about restricting the flow of information, technology, trade and investment, management and legal structures which further localisation, indeed these are encouraged by the new localist emphasis in global aid and trade rules. Such transfers also play a crucial role in the successful transition from globalisation to localisation. It is not a return to overpowering state control, merely governments’ provision of a policy and economic framework which allows people, community groups and businesses to re-diversify their own local economies.

4. GLOBALISATION -v- INTERNATIONALISM

IT is imperative to make a clear distinction between, for example, a global flow of technology, ideas and information to rebuild sustainable local communities, i.e. a supportive ‘internationalism’, and the process of globalisation. In essence, the latter is the systematic reduction of protective barriers to the flow of goods and money by international trade rules shaped by and for big business. It pits country against country, community against community and workers against workers. That is the point of it, because such a structure and process is the route to maximising profits. Internationalism can be thought of as the flow of ideas, technologies, information, culture, money and goods with the end goal of protecting and rebuilding local economies worldwide. Its emphasis is not on competition for the cheapest, but on cooperation for the best.

Linguistic clarity is vital since the advocates and beneficiaries of globalisation misuse the indisputable benefits that can accrue from such constructive international flows to justify the destructive process of globalisation. In tandem with this misleading approach is invariably a promise that someday the growth resulting from globalisation will somehow trickle down to benefit the majority.

5. DOWNSIDES OF GLOBALISATION

THE MAIN purpose of this section is to summarise the faulty theoretical underpinnings of what, in essence, has become an international theology. There are a number of excellent publications which authoritatively detail the adverse effects of globalisation, and how it is directly guided by the priorities of transnational companies (TNCs). Here, it is the intention of looking at the briefest of summaries which will then clear the way to consider its diametric opposite, localisation – along with the policies that can bring it about.

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UP UNTIL the Asian Crisis that began in July 1997, supporters of a global economy built on trade liberalisation, usually describing it as a win-win game. The theory is that the economies of all participants grow as countries specialise in what they are good at providing. They then import what they are less proficient in, what economies term ‘comparative advantage’.

Whilst it has to be conceded that this process has increased income disparities in most countries, the theory is that the resulting growth will eventually result in benefits for the majority. Yet, though all countries are meant to benefit by providing cheaper exports and for that to trickle down to the general populace, this rarely happens in practice. What does occur is that hand in hand with rising Gross National Product (GNP) statistics (and, until recently booming stockmarkets) has come a global rise in inequality, declining social and environmental conditions and a loss of power by sovereign states, local governments and citizens. The major beneficiaries have been, undoubtedly, the TNCs and international capital; the major losers have been the poor and the rising numbers who have lost their jobs, or are underemployed and underpaid.

In its reports in the latter half of the 1990s, the International Labour Office (ILO) catalogued that one third of the world’s willing-to-work population was either unemployed or underemployed, the worst situation since the 1930s. The income inequalities that have come in globalisation’s wake are illustrated by the fact that in 1960 the combined incomes of the richest fifth of the world’s population were 30 times greater than the poorest fifth. By 1991 it was over 60 times and in 1998 the UN’s latest figures put this as 78 times as high. The stock of wealth of the 447 (mainly American) dollar billionaires listed by Forbes magazine in 1996 has been estimated by the highly respected Institute of Policy Research (IPR) in Washington DC to exceed the annual income of the poorest half of the world’s people. The richest three have assets that exceed the combined GDP of the least developed countries with a total population of more than 600 million.

To sustain this ‘success’, ever less trade barriers, minimal constraints on capital flows, privatisation, deregulation, flexible working and strict curbs on public expenditure goals are demanded. Virtually all the world’s economies are geared to maximum inward investment and cheaper exports. It is constantly asserted that these measures are really succeeding in delivering prosperity. Until the Asian crisis this tended to be defined in terms of rising GNPs, stockmarket valuations and trade statistics. Globalisation’s supporters also claimed that one day the process will provide the surplus necessary to tackle environmental and social problems. In any case there is, most establishment commentators still agree, no alternative.

Until the Asian crisis it was of course possible to list from a conventional economic perspective a number of gains from trade liberalisation. Between 1975 and 1995, the proportion of East Asians living in absolute poverty declined from 60 per cent to 20 per cent. In Latin America in particular, inflation was sharply reduced from a regional mean of 196 per cent in 1991 to 19 per cent in 1996. However, the July 1997 Asian economic crash and the subsequent cuts in Latin America’s public expenditure have resulted in an increase in the number classified as being in absolute poverty.

6. GLOBALISATION IS DE-LOCALISATION

…’Behind all these “meanings” of Globalisation is a single underlying idea that can be called “de-localisation”: the uprooting of activities and relationships from local origins and cultures. It means the displacement of activities that until recently were local into networks of relationships whose reach is distant or world-wide. Domestic prices of consumer goods, financial assets such as stocks and bonds, even labour – are less and less governed by local and national conditions; they all fluctuate along with the global market prices. Globalisation means lifting social activities out of local knowledge and placing them in networks in which they are conditioned by, and condition, world-wide events.’

— [Gray, J (1998) False Dawn: the Delusions of Global Capitalism, Granta Books, London, p57]

OF course however far globalisation proceeds it is not omnipotent. It will always be true that world markets will not affect some dimensions of a society’s economic life, though these may change over time. Modern information and communication technologies have meant though that people’s traditional cultures are far more deeply influenced than ever before.

Globalisation also doesn’t bring total homogeneity. When business invests abroad it adapts to some extent to local conditions in order to maximise local demand for their products or services and to minimise the chance of their being discriminated against by trade or investment barriers. This process is known as glocalisation, and has been defined as:

…A company’s attempt to become accepted as a “local citizen” in a different trade bloc, while transferring as little control as possible over its areas of strategic concern.

Despite these minor caveats, the gap between rich and poor in this overall process of de-localisation is widening, in large part according to the United Nations Committee on Trade and Development (UNCTAD), due to the uneven impacts of globalisation, inequalities which UNCTAD believes could cause major social upheavals. Taken as a whole, the pressure for trade liberalisation, pushed by TNCs, economists, commentators, and, more recently by politicians, has been to the detriment of the majority globally, to social cohesion and to the environment.

7. THE THEORY OF COMPARATIVE ADVANTAGE

ECONOMISTS CLAIM that all nations benefit by trade because of the principle of comparative advantage. According to British economist Adam Smith (1776), and later refined by David Ricardo (1817), trade liberalisation has been built on this principle, the diktat of which is based upon international competitiveness and the promise of growth today, generating wealth for tomorrow. The free trade theory underpinning all this rests largely on the concept of comparative advantage.

According to Smith and Ricardo nations do best from international trade when their industries specialise. By mass producing those goods where they can make maximum use of the factors of production (i.e. whether land, climate, natural resources or labour) which are in abundance locally, countries are able to gain a price advantage over their competitors. Thus a nation should narrow its focus of activity, abandoning certain industries while developing those in which it has the largest ‘comparative advantage’.

If a country has a significant amount of low cost labour, for instance, it should export labour-intensive products: if it has a rich endowment of natural resources, it should export resource-intensive products. By exporting what they can produce most cheaply and importing what others can produce more cheaply, international trade, according to the theory, would grow as nations export their surplus and import the products that they no longer manufacture. As a result, efficiency and productivity would increase in line with economies of scale and prosperity would be enhanced.

As producers vie with each other to improve production and sell their goods, they become more efficient. Efficiency and competition thrive off each other. The trader ensures that goods get to where there is the most appropriate market. The nature of comparative advantage for a country may alter completely through long-term planning, education and investment. Japan has made its wealth on manufactured goods, despite being poor in natural resources and energy. But for poor countries, as their economies now stand, free trade would mean continuing in their role as low-cost producers of primary goods for Western consumption.

For Adam Smith, prosperity was dependent on specialisation, which made workers more productive. Since one worker produced one thing more efficiently, there were more total goods to go around. This requires a market for the goods. But the more specialised the production, the larger the market would be needed to assimilate it. This division of labour is thus limited by the extent and scope of the market, as is the prosperity which can be generated. Smith argued that the case for specialisation and large markets does not stop with national boundaries. The same advantages gained by trade among free citizens within the nation would apply unchanged to exchanges between citizens and firms in different nations. The ideal, according to the theory, is a completely open global market in which goods and services pass freely over all national boundaries.

Thus, the basic thesis of free trade is that, instead of a country being self-sufficient, each one should produce what it can produce most cheaply, that is the things in which it has a ‘comparative advantage’. It would then exchange its goods for what could be produced more cheaply elsewhere. As everything would be produced more cheaply, everyone would be better off. The ‘invisible hand’ of market forces would direct every member of society and every nation, using the dynamo of self-interest, to the most advantageous situation for the global economy as a whole. This theory runs into difficulty where one country can produce a number of products more cheaply than others, and has no incentive to trade, or where a country has little or no comparative advantage in anything.

Ricardo attempted to address the former by using a semi-fictitious example to illustrate how the theory of comparative advantage works to everyone’s advantage. Say, Portugal is capable of producing both wine and cloth with less labour (hence less cost) than England. However, Portugal can make the most money by transferring all efforts to the production of its most profitable commodity, in his example wine, and importing cloth from England. This comparative advantage would be big enough to overcome the fact that Portugal can produce cloth cheaper than England can. From England’s perspective, although it has to give up producing wine in order to produce enough cloth for its exports, the cost differences between the two products internally, when compared with the cost advantage of ceasing wine production and just trading cloth, mean that England also enjoys a ‘comparative advantage’ by engaging in this trade. Both countries appear to gain.

8. WTO – THE GLOBAL ENFORCER OF COMPARATIVE ADVANTAGE

THE GATT rules of the WTO, a Geneva-based agency set up in 1995 has as its aim the reducing of trade barriers, preventing increases in tariffs, and promoting multilateral negotiations to lower tariffs. It provides a set of rules and processes for such trade liberalisation, as well as providing a mechanism for implementing them. Although it seeks a world free trade order as its ultimate goal, it is primarily concerned to create what it sees as a fair, open, non-discriminatory, multilateral, rules-based trading system, much of its work focusing on the detail of trade relations.

The WTO is the successor to the GATT: which set out rules for world trade aimed at eliminating tariffs and other barriers to trade. The WTO provides a global executive branch to judge a country’s compliance with its rules, enforce the rule, with sanctions and provide the legislative capacity to expand the rules in the future. The WTO has no mechanism for non-governmental organisations (NGO) involvement and requires that all members agree to be bound by its rules and that the laws of every nation must ‘conform’ to the WTO and each other.

The central principles of GATT rules are:

Liberalisation or ‘market access’ – this aims to gradually reduce most forms of protection and fixing or ‘binding’ these reduced levels. This involves an undertaking initially to fix maximum tariffs or other measures at the agreed level; actual tariffs can be below this level, but if set at higher levels, compensation may be claimed or retaliatory actions taken by countries adversely affected.

Reciprocity – the negotiating process whereby each country makes successive tariff reduction offers until a schedule of mutually agreed reductions is reached.

Non-discrimination – this concept, implying equality between WTO members, takes three forms: first, WTO rules apply equally to imports and exports; second, trade concessions granted to any country must be extended equally to all other WTO members – the ‘Most Favoured Nation’ (MFN) principle; third, no tariff, tax or other measure should discriminate between domestic and foreign suppliers – the ‘National Treatment’ (NT) principle.

Transparency – any form of protection a signatory chooses to use within the framework of WTO rules should be clearly and firmly stated, should be consistent and ideally should take the form of visible tariffs.

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THE WTO’s GREATEST power lies in its dispute settlement body and its cross-retaliation provisions, both of which enable it to force nations to comply with the WTO rules. The increasing number of controversial rulings in which the WTO dispute settlement body has upheld corporate interests over those of people and the environment has increased public opposition to the WTO.

Within the WTO system, any member state can complain to the dispute settlement body about any other member’s policies or laws that are perceived to restrict the flow of trade. If the panel, composed of unelected bureaucrats, finds a government guilty of non-compliance with WTO agreements, the offending country must change its legislation or face retaliatory trade sanctions by the complaining party, even in sectors unrelated to the dispute. The offending country may also face heavy financial penalties.

During the first four years of the WTO’s existence, the Dispute Settlement Mechanism has been invoked predominately for disputes between the EU and the US. These include the banana and beef hormone disputes which provide evidence of an anti-environmental and anti-poor approach and the central, although often behind the scenes, role played by TNCs.

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GLOBALISATION is reducing the power of governments to provide what their populations require all over the world. TNCs and international capital have become the de facto, new world government. Their increasing control over the global economy is underpinned by free trade orthodoxy.

Yet the theories behind this bear no comparison to today’s reality. The original theorists, Adam Smith and David Ricardo, expected most capital to stay in the country where it was generated. Today, there are very few constraints on the flow of capital. The increased size and the global spread of TNCs have been paralleled by a massive increase in the amount of capital flowing around the world. Developments in computing and information technology, plus a deregulation of controls on capital by nations states now mean that around US$1.5 trillion is transferred every day around the world.